The Duke’s gardener was paid weekly, but to reduce tax, his solicitors drew up a deed in which it was said that the earnings were not really wages, but were an annual payment payable by weekly instalments.
Held: To find out what the true relationship was and what the true nature of these payments were, you had to look at the deed.
Tomlin L said: ‘it is said that in revenue cases there is a doctrine that the Court may ignore the legal position and regard what is called ‘the substance of the matter’, and that here the substance of the matter is that the annuitant was serving the Duke for something equal to his former salary or wages, and that therefore while he is so serving, the annuity must be treated as salary or wages. This supposed doctrine . . seems to rest for its support upon a misunderstanding of language used in some earlier cases. The sooner this misunderstanding is dispelled, and its supposed doctrine given its quietus, the better it will be for all concerned, for the doctrine seems to involve substituting ‘the incertain and crooked cord of discretion’ for ‘the golden and streight metwand of the law’. Every man is entitled if he can to order his affairs so that the tax under a tax statute is less than it would otherwise be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax. This so called doctrine of ‘the substance’ seems to me to be nothing more than an attempt to make a man pay notwithstanding that he has so ordered his affairs that the amount of tax sought from him is not legally claimable.’ and ‘Whatever the substance of the arrangements may have been, their fiscal effect had to be in accordance with the legal rights and obligations they created.’
Lord Tomlin
[1936] AC 1, [1935] All ER 259, (1935) 19 Tax Cas 490, (1935) 104 LJKB 383, [1935] UKHL TC – 19 – 490, [1935] UKHL 4
Bailii, Bailii
England and Wales
Cited by:
Cited – W T Ramsay Ltd v Inland Revenue Commissioners HL 12-Mar-1981
The taxpayers used schemes to create allowable losses, and now appealed assessment to tax. The schemes involved a series of transactions none of which were a sham, but which had the effect of cancelling each other out.
Held: If the true nature . .
Cited – Commissioners of Inland Revenue v McGuckian HL 21-May-1997
Steps which had been inserted into a commercial transaction, but which had no purpose other than the saving of tax are to be disregarded when assessing the tax effect of the scheme. The modern approach to statutory construction is to have regard to . .
Cited – Trennery v West (Inspector of Taxes) HL 27-Jan-2005
The House considered the application of the section to ‘flip-flop trusts’. The section allocated liability to charge on gains within a settlement under certain circumstances onto the settlor, and at his rate of tax. Assets were allocated to two . .
Cited – Norglen Ltd (In Liquidation) v Reeds Rains Prudential Ltd and Others; Circuit Systems Ltd (In Liquidation) and Another v Zuken-Redac HL 1-Dec-1997
An assignment of a cause of action by a company in liquidation was valid, even though the dominant purpose was to avoid having to give security for costs, and to get legal aid. In dismissing the argument that the transactions were a device to defeat . .
Cited – Massey v Crown Life Insurance Company CA 4-Nov-1977
Massey worked as Crown Life’s manager under 2 contracts, one a contract of employment, the other a contract of general agency. Tax and other contributions were deducted from wages paid under the former, while commission was paid under the agency . .
Lists of cited by and citing cases may be incomplete.
Taxes Management
Leading Case
Updated: 10 November 2021; Ref: scu.220503